Volunteers and in-kind contributions are essential to nonprofit operations, but they come with complex IRS rules that organizations must follow carefully. The IRS recently released updated guidance clarifying what volunteers can deduct, what nonprofits must substantiate, and how in-kind donations should be recorded for financial and tax reporting purposes.
Below is a clear breakdown of the new clarifications and what they mean for nonprofit leaders, finance teams, and volunteer coordinators.
1. What Volunteers Can Deduct
The IRS reaffirmed that volunteers cannot deduct the value of their time or services, even if those services have measurable market value.
However, volunteers can deduct certain unreimbursed, out-of-pocket expenses directly tied to charitable service, including:
- mileage driven for charitable purposes
- travel expenses necessary for volunteer duties
- uniforms or supplies required for volunteer work
- small incidental costs incurred while performing charitable services
To qualify, expenses must be:
- unreimbursed
- directly related to the nonprofit’s mission
- properly documented
- not personal in nature
Pro tip for nonprofits: Provide volunteers with clear guidance on what qualifies as a deductible expense.
2. What Nonprofits Must Substantiate
Nonprofits play an important role in helping volunteers substantiate deductions when they incur expenses of $250 or more.
A proper acknowledgment should include:
- the organization’s name
- a description of the services performed
- a statement confirming whether the volunteer received any goods or services in return
- the date(s) of the volunteer activity
Nonprofits are not required to assign a dollar value to the volunteer’s contribution — but they are responsible for acknowledging qualifying expenses.
Why this matters:
Clear acknowledgments protect both the volunteer and the organization and reduce audit risk.
3. Properly Recording In-Kind Donations
The IRS also clarified how nonprofits should record non-cash donations. These may include:
✔ Donated goods
Supplies, equipment, auction items, materials, donated inventory, etc.
✔ Donated services
Professional or volunteer services are not recorded as revenue under GAAP, though they may be disclosed in footnotes if they meet certain criteria.
Key reminders:
- Donated goods must be recorded at fair value.
- In-kind contributions must be properly categorized in financial statements.
- Form 990 requires detailed reporting of certain non-cash contributions.
- Inaccurate in-kind reporting is a common audit finding.
Nonprofits should revisit their in-kind donation policies to ensure they reflect the IRS’s clarifications.
Why This Matters for Nonprofits
Volunteer participation and donated goods often represent meaningful support for nonprofit missions — but without proper substantiation and reporting, these areas can create compliance issues.
This updated IRS guidance provides helpful clarity, but nonprofits still need strong internal processes, including:
- updated acknowledgment templates
- clear volunteer expense policies
- consistent in-kind donation recording procedures
- staff training for development and finance teams
How TrimnerBeckham Supports Nonprofits
TrimnerBeckham helps nonprofits strengthen their compliance practices by offering:
✓ in-kind donation policy reviews
✓ acknowledgment letter templates
✓ Form 990 reporting support
✓ audit-ready documentation workflows
✓ volunteer expense policy development
If your organization relies on volunteers or receives in-kind gifts, now is the perfect time to update your policies and ensure they reflect current IRS expectations.
